PM Modi has obtained an unexpected landslide victory at the key state election in Uttar Pradesh (UP) in which his BJP party won 312 out of 403 seats. In addition to a victory in Uttarakhand state, the BJP also managed to take power in the states of Goa and Manipur through political alliances. The Congress Party, i.e. the major national opposition party, only won in Punjab. The BJP is strengthened by those state elections since it has become the largest single party in the Parliament’s upper house while it is in a majority position in the lower house.  

Impact on country risk

PM Modi has passed a decisive electoral test as Uttar Pradesh is the largest state, mainly rural and poor with a relatively large Muslim minority. His overwhelming success is a personal victory as he campaigned himself for India’s ruling BJP party and thus highlights Mr Modi’s high popularity across all sections of Indian society. This is particularly remarkable as it happened more than four months after a destabilising demonetisation shock that especially hit the poor. However, his main argument of fighting corrupt people, black money and tax evaders clearly paid off. Also, the plan’s negative impact on liquidity and economic activity in the past months has been eased progressively. Looking ahead, while the opposition remains fragmented at a national level, Mr Modi should be a clear favourite to win a second mandate in the 2019 general elections. This bodes well for his reformist agenda – supported by a potential majority in Parliament’s both houses after 2019 – and India’s strong economic outlook which could be further supported by increased infrastructure development. In fact, the main downside risk to stability could lie in Mr Modi’s rhetoric of Hindu nationalism and superiority likely to exacerbate communal tensions, especially as Mr Modi enjoys a more powerful political mandate. This is recalled by the controversial appointment of a Hindu extremist as new leader of the UP.

Analyst: Raphaël Cecchi, r.cecchi@credendo.com